Although China and Vietnam are involved in both territorial and boundary disputes in the South China Sea, at present, managing the territorial dispute over the Spratly Islands is more significant than anything else. Analysis of the dispute based on international law, particularly on the ICJ case law, may help the two sides to manage their dispute in a new perspective and generate political willingness to negotiate the joint development area instead of the sovereignty over the islands. China’s policy that the joint development area around the disputed islands is negotiable is quite a positive signal for peace in the South China Sea and provides a practical basis for new negotiations between China and Vietnam.